VAT registration is not obligatory until a company turns over more than £70,000 in a year (the 2010 threshold).

A VAT number is definitely a sign of credibility, but many top craftsmen work alone, and don’t need to register.

Be suspicious if a VAT registered company offers to do a job cheaper by not charging VAT. Not being alarmist, but the VAT man is omniscient and has great powers to act against both parties acting fraudulently!

AW Accounting http://awaccs.co.uk/tax-advice/vat-tips-for-building-projects have provided some tips relating to VAT on building work:

There are a few VAT specific savings available for building work depending on the project you are working on and the property:

Listed Property

Work on “adding” to the property is zero rated, but it is up to the contractor to decide on whether to charge or not.  In many cases it is easier to just charge the customer.  Examples of additions include: an extension; installing central heating for the first time; a conservatory; even adding an Aga where there was not a kitchen formerly.  This however does not include general repairs and maintenance work.  More information is available from your accountant, HMRC or the Listed Property Owners Club (www.lpoc.co.uk).

Changing number of dwellings in a property

Vat on changes in dwellings is charged at a reduced 5% rate, and this will include: subdividing a house into flats; opening up an existing house which was previously split into flats; making a building not previously a dwelling into one eg a barn or warehouse conversion.

Claiming VAT on a home office

Under a little known concession “where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is out to business use”.  So if 20% of an extension is to provide an office for you to work from home then you can claim 20% of the VAT, and also any specific items in that room which are for business purposes eg floor coverings, lighting.

This tips only provide a brief summary of what is available and may not apply to specific circumstance so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• Any pre budget gains are still taxed @ 18%
• Post budget gains are taxed under new regime
• You can choose whether to offset the £10100 allowance against pre/post budget gains to minimise your tax bill (normally the post budget gains as avoids 28%)
• For post budget gains, once the allowance has been offset (if applicable), the gain is added to the persons taxable income (ie a “top slicing” arrangement):
  • Gains up to the top of the basic rate band are taxed at 18%
  • Gains into HR tax band are taxed at 28%

Example 1 from Budget Note 20 produced by HMRC (see link above)

Example 1
In 2010-11 X’s taxable income, after all allowable deductions and the personal allowance, is £27,400. The upper limit of the income tax basic rate band is £37,400. X sells an asset in May 2010 and realises a chargeable gain of £17,000. In November 2010 X sells another asset, realising a chargeable gain £25,100. X has no allowable losses to set against these gains, and the AEA (Annual Exempt Allowance) for 2010-11 is £10,100. Neither of the gains qualifies for entrepreneurs’ relief.
X’s taxable income is £10,000 less than the upper limit of the basic rate band (£37,400 – £27,400). X sets the AEA against the later gain (because part of that gain is liable to tax at the higher CGT rate), leaving £15,000 taxable (£25,100 – £10,100). The first £10,000 of the £15,000 is taxed at 18 per cent and the remaining £5,000 is taxed at 28 per cent. The £17,000 chargeable gain X realised in May 2010 before the change of rates on 23 June 2010 is taxable at the old 18 per cent rate.

This article aims to be informative and your should take professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

The Chancellor George Osborne started by painting the picture of the poor state of the economy and among various political comments stated that due a cautious approach fiscal goals would be met one year earlier than expected in 2014.  The inflation target will remain at 2% which has already been exceeded, this will peak at 2.7% later in the year and then reduce.  In terms of the approach to the deficit a lower spending rather than higher tax route is being taken, supporting the stand taken by the IMF and OECD, which will be done in the ratio 80/20, clearly showing the public sector will suffer.  The relationship with Europe will continue with a commitment not to join the Euro, and the government group looking at this area will be disbanded and used for more “useful tasks.”

Turning to the actual decisions, cuts are to be made to existing budgets but there was a commitment to capital spending, particularly if there is economic benefit.  This will be greeted with some optimism by the schools and infrastructure in North Kent which was rumoured to be cut to reduce the deficit.  The Royal Family have accepted that the Civil List will be frozen , and will be subject to annual National Audit Office reviews.  There will be an overall reduction of 20% in departmental budgets but due to commitments to maintain or increase NHS funding and overseas support the actual effect on departments hit by the cuts will be that of a 25% cut.  We will not know the full impact of the cuts until the Spending Review for which the date has been released for the first time as Wednesday 20^th October.

The public sector will face the biggest cuts and the most noticeable to the man in the street is the 2 year pay freeze for staff paid over £21k.  The government wants to encourage the back to work culture and the tax credits system is being used to facilitate this.  Tax credits will be more targeted particularly at the lower paid and will reduce for families with a combined income over £40k.  Child benefit is also to be frozen, the government acknowledging a number of approaches including means testing and taxing the benefit but finally settling on a freeze.  In other areas medical tests are to be introduced for those claiming disability benefit.

For business the main corporation tax rate will reduce by 1% per annum for the next 4 years reducing from 28% to 24% over that time, which will be the lowest rate in the G20.  For small businesses the rate will reduce by 1% only to 20% from next year.  There is also to be a small reduction in the rates of capital allowances, of main interest to small businesses the Annual Investment Allowance will reduce from £50k to £25k, which will still meet the needs of many SME businesses.

Among the miscellaneous changes, the Chancellor is introducing a levy on banks as recommended by the IMF, and this will take the form of a tax based of the size of the bank, small banks will be excluded from this arrangement.  The landline duty to fund broadband expansion is being withdrawn before even being introduced, this will be funded by links with the private sector and local initiatives.  In order to encourage business growth outside London and the South East there will be an NI exemption for new businesses being set up.

The biggest news of the budget and not entirely unexpected was the increase in VAT from 17.5% to 20% from 4 January 2011, but exempt and zero rated items such as childrens clothing and food will be unaffected.

There will be no increases in the previously announced duties for alcohol/fuel etc, but the additional cider increase has been withdrawn from the end of the month (apparently in time for the final 8 in the World Cup!)

In personal tax capital gains tax will remain at 18% for basic rate taxpayers but increase to 28% for higher rate taxpayers, the £10,100 limit will remain.  This may appear good at first sight but gains on property for example may well push basic rate taxpayers over the threshold so will pay 28% anyway.  To continue to encourage entrepreneurship the limit for lifetime gains will be increased to £5m at which an effective 10% rate applies.

Personal tax allowances will increase by £1000 to £7475 from next year, one step towards the £10k limit proposed by the Lib Dems.  The NI thresholds are to be increased and the cost to employers of employing staff paid less than £20k will not increase.  For pensioners the basic state pension will be relinked with earnings after a gap of several years, and in a further attempt to support low income families the Child element of Child tax credits will increase by £150pa.

This is by its nature a summary of the main points we consider of interest to readers, there was alot more content in the whole speech but we hope this will be more easily understood.  The main announcements are on HMRC website http://www.hmrc.gov.uk/budget2010/index.htm .  We hope this will be informative but if you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

He was looking at the Honda Insight with a P11D list price of £16,270 and CO2 of 101g/km.  The other well known hybrid the Toyota Prius has lower emissions of 89g, but higher list of £19505.

Benefits in kind

The car benefit to the employee is based on 10% of the list price (£1627 for the Honda) and is £325.40 for a basic rate taxpayers and £650.80 for a 40% rate taxpayer.  The additional benefit if fuel is provided is £1800, costing an additional £360 or £720 in tax for 20%/40% taxpayers respectively.

The equivalent for a 2.0 TDCi Mondeo Zetec list price £16770 and 139g CO2, benefit is £3186 and cost £637.20 and £1274.40 for 20%/40% taxpayers, and with fuel an additional £3420 benefit costing £684 and £1368 respectively.

In conclusion the Mondeo works out at about twice as much due to higher emissions for a similar priced car.

Capital allowances

There are also savings for a company, if a car has emissions of less than 110g then the full cost of the vehicle can be claimed against profits in the year of purchase so at 21% a saving of £3416 in corporation tax.  The Mondeo with emissions of <160g attracts a 20% allowance, and only £670.80 tax saving

There is a price to pay in terms of performance and size but clearly significant savings in tax in the year of purchase, but well worth considering for the green driver.

I hope this will help you decidwhat would be the best option for you but if you are unsure about this or would like advice in other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

1. Personal allowance – everyone has a personal allowance which is a tax free band, these are normally £6475 for the younger working population, rising to £9.5k for the over 65s who also get an additional amount for married couples of at least £2.6k.  This sets the level from which other adjustments are made.
2. If you have more than 1 employment or pension and one is under the personal allowance limit, HMRC will issue two coding notices, one which “should” cover the smaller amount and the balance of the tax free amount is allocated to the other employment.  This means that you will not be overtaxed.  This is often used for pensioners where part of the allowance is allocated to the state pension and the rest to other income.  In order to check this make sure the deduction for “state pension/state benefits” is about the same or a little more than the annual state pension you receive.
3. Benefits in kind – employees sometimes get benefits from their employers such as health insurance or company cars.  These are part of taxable income so in order to tax these amounts correctly part of the personal allowance is taken away which by default means that this part of income becomes taxable.  In order to check this make sure that the figure deducted from your code is the amount of the benefit paid for the year, which should be shown on the P11D form you receive from your employer every year.  If you no longer receive a benefit you should call or write to HMRC to advise them so they can amend the code.
4. Additional allowances for Gift Aid and pension contributions – both of these are taxable at the basic rate (although pension contributions are now restricted for the very highest earners (over £150k), so if you are a higher rate taxpayer HMRC will give you an allowance to make sure that these are not taxed at the higher rate on these.
5. If you have underpaid tax as a result of your tax code being wrong you must advise HMRC by preparing a Self Assessment Tax Return.

If you have identified an error you can call HMRC using the 0845 number but this is often accompanied by a very long wait, so alternatively write to them, but the processing time will be several weeks, so there is no fast and simple solution.

We hope you find the contents of this blog useful; the principles of allocating the tax code are fairly simple but if you are unsure you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

One of the major tests is the degree of control exercised by the employer, while an employee may be told what to do and how to do it on a regular basis and be assessed on how well work is completed, a self employed person may complete the job the way they wish to.

Self employed work on a task or job basis when they quote, complete the work, or invoice at the end of the job whereas an employed person normally works on a process or series of them and is paid on a regular basis whether monthly or weekly.

As the self employed work in their own way, they normally supply the materials and tools to complete the job, whether this is a laptop or concrete mixer.  They may also get other people to complete the work, ie they have a right to substitute other people.

Self employed do not have rights to holidays, lunchtimes and do not normally have regular hours like employees.

In the employer/employee relationship there is a mutuality of obligation, on the company to provide work and the employee to accept the work given.

In summary the hallmarks of employment are to provide a personal service, control by the employer and mutuality of obligation in the provision of work.  This decision has a significant tax effect and HMRC will use the above tests of employment to try and prove employment wherever possible so it is time well spent in putting together a good defence if there is any doubt.

We hope you find the contents of this blog useful; you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• 19 April – PAYE must be paid for the period up to 5 April (usually just the March payroll) – and monthly on 19^th for each subsequent month
• 30 April – VAT Returns must be submitted and paid for quarter to 31 March (and 31 May for quarter to April etc)
• 6 May – Election day will decide who is going to use our taxes for the next few years
• 19 May – end of year P35 return must be submitted and any additional tax paid
• 31 May – give each employee a copy of their year end P60
• 4 July – American Independence Day
• 6 July – Benefit in Kind annual P11D return must be submitted and copies given to employees
• 14 July – Bastille Day in France, a good excuse for a bottle of wine and fireworks
• 19 July – Class 1A NIC paid to HMRC for P11D benefits
• 31 July – 2^nd payment on account of your 2009/10 tax bill
• 31 October – File your paper tax return (individuals and partnerships)
• 18 November – Beaujolais Nouveau wine released
• 31 January 2011 – File your tax return online (individuals and partnerships), make any final payment of 2009/10 tax and make a payment on account of 2010/11 tax if applicable .

In addition Limited companies will need to pay their tax and file accounts at Companies House 9 months from their year end, and file a corporation tax return 12 months from their year end.  Individuals do not forget you will need to advise the tax credits office of your income for last year separately despite being a part of HMRC as this will finalise your claim for the year.

We hope you find the contents of this blog useful; you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• The Annual Investment Allowance (AIA) will be increased to £100k pa for expenditure incurred on or after 1 April 2010 (companies) and 6 April 2010 (unincorporated businesses).
• No changes have been made to the main and small companies’ rates of corporation tax which for 2010 remain at 28% and 21% respectively.
• A 100% first year allowance will be available for new zero-emission goods vehicles for a five year period from 1 April 2010 (companies) and 6 April 2010 (unincorporated businesses)..
• Business rates cut for one year from October meaning a tax reduction for more than 1/2 million small businesses in England and 345,000 will pay no business rates at all.

For individuals

• The lifetime allowance for entrepreneurs’ relief has been increased to £2m and may be claimed for disposals made on or after 6 April 2010.  Capital gains tax rate remains at 18%.
• No further changes were made to income tax or NI rates beyond those announced in the Pre-Budget Report.  A summary of tax rates and allowances can be found at www.hmrc.gov.uk/budget2010/pn02.pdf
• Relief from stamp duty land tax is available for first time buyers on residential properties up to £250k. This applies for purchases completed between 25 March 2010 and 25 March 2012.
• Stamp duty land tax will be payable at 5% on residential properties over £1m for completions on or after 6 April 2011.
• The IHT nil rate band will now be frozen at £325k for four years (until 2014/15).
• The car scale benefit rates for very low CO2 emission vehicles will be reduced to 5% for cars or vans with emissions of less than 75g per km and nil for vehicles which produce no CO2.

Other measures

• Above inflation increases in alcohol and tobacco
• A phased increase in fuel duty of 1p in April, October and January
• A £35 million university enterprise capital fund, to provide direct support for university innovation and spin-out companies.
• Additional £84 million for repair of local and regional roads damaged by recent adverse weather and £250m investment to improve the motorway network.
• From this April, a new 50 per cent rate of tax will apply to incomes above £150k and from April 2011 tax relief on pension contributions will be restricted for those incomes of £150k and over.
• Employee, employer and self-employed rates of National Insurance contributions will increase by one per cent from April 2011. However, the 15 million people on incomes below £20k will not pay any extra National Insurance contributions.
• Personalised Services for Start-ups and SMEs through Businesslink.gov.uk – By autumn 2011, a new personalised area for start ups will provide easy access to enhanced guidance and tools to help businesses find the support they need when setting up including an HMRC tax registration ‘wizard’ that enables registration for multiple taxes, online services and payment plans using a single interactive online form.
• A tax incentive for the UK video games industry, following consultation and approval from the European Commission

This budget is a short term measure in view of the forthcoming election and there are likely to be more significant measures made in the post election budget, both in tax avoidance, reduced public expenditure and increased taxes.

We hope you find the contents of this blog useful, you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting  – Accountants who “speak your language”

So if you need to complete a tax return what information do you need?  A list of the common items follows:

1. End of year P60 from your employer (you should have this by May each year) and any pensions or benefits received
2. Benefit in kind form P11D from your employer (by July)
3. Details of interest received on all current and savings accounts
4. Details of all dividends received (including those from your business)
5. Profits from your trade if self employed
6. Details of rental income net of relevant expenses
7. Details of any capital gains on sale of assets

You can also get tax relief for some items:

1. Personal pension contributions
2. Payments made under gift aid
3. If employed certain expenses incurred wholly, exclusively and necessarily for your employers business may be allowable (this includes 40p/mile, for business mileage upto 10k miles, even if you are paid less than that)

The easiest way to collect these is to put them into an envelope as they arrive then you can complete your tax return as soon as you have collected everything.  This list includes all of the more usual items however you should ask your accountant if you have any specific questions.

We hope you find the contents of this blog useful, you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting  – Accountants who “speak your language”

1. For the wife to be paid a small amount, she was involved in a number of administrative roles within the business.  This has to be restricted to £95 per week otherwise the Carer Allowance would be restricted.  A matter of note is that if you are in receipt of Carer Allowance, all of your basic NI contributions are covered.
2. As the client made large contributions under Gift Aid his basic rate tax band was already in excess of £37400 limit.  His income could therefore go up to this greater limit without paying tax at the higher rate.  Clearly if he wished to and had the finances he could increase the amount given under gift aid to increase this further.
3. He wished to make a pension contribution and having planned in advance of the end of the tax year, I was able to advise him of how much he could pay to avoid having to pay higher rate tax by extending his basic rate band further.
4. He did not necessarily want to make too large a pension contribution as he is approaching retirement age so he now has the choice to make a smaller pension contribution and potentially fully utilise his ISA allowance of £10,200 for 2009/10.
5. He had not been advised on what expenses he could claim on his company and I was able to assist him in this area, covering items such as use of home as office, and claiming the mileage rate.  He had also just gone over the VAT limit, a fact he could easily have missed as he had excluded part of his income.
6. He has now secured a full time PAYE position so the company may or not be retained but the moral of the story is to get advice early to make sure you:
   1. do not miss out on opportunities and
   2. also avoid the pitfalls.

We hope you find the contents of this blog useful, you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting  – Accountants who “speak your language”